Regulation A+ (Reg A+)

Regulation A+ offers two distinct offering tiers with different limits and requirements.

• Tier 1: Allows capital raises of up to $20 million in a 12-month period. It requires state-level (Blue Sky) securities registration and review.
• Tier 2: Allows capital raises of up to $75 million in a 12-month period. It preempts state review but imposes stricter requirements, including mandatory audited financials and investment limits for non-accredited investors.

A key feature allowing issuers to gauge investor interest before filing an offering statement with the SEC. Companies can use general solicitation (e.g., advertisements, websites) to present their offering terms to the public and solicit non-binding indications of interest. This helps assess market demand and refine the offering before incurring the full cost of SEC qualification.

Post-offering, issuers have ongoing disclosure requirements, which differ by tier.

• Tier 1: Must file an exit report (Form 1-Z) after the offering concludes or terminates.
• Tier 2: Subject to more rigorous, ongoing reporting similar to public companies, including:
  • Annual reports (Form 1-K)
  • Semi-annual reports (Form 1-SA)
  • Current event reports (Form 1-U)
  • Exit report upon termination

Regulation A+ is notable for allowing participation from both accredited and non-accredited investors, democratizing access to early-stage investments. However, Tier 2 includes specific protections for non-accredited investors:

• Their investment in a Tier 2 offering is limited to the greater of 10% of their annual income or 10% of their net worth (excluding primary residence).
• There are no investment limits for accredited investors in either tier.

Unlike a registration statement (e.g., S-1), a Reg A+ offering requires the SEC to qualify the offering statement (Form 1-A). This involves a review process where the SEC staff examines the disclosure document for compliance. The offering can only commence once the SEC issues a qualification order. The process is generally less extensive and costly than a full IPO but more rigorous than a Regulation D private placement.

Securities sold under Regulation A+ are not restricted securities under Rule 144. This means they can be freely resold by purchasers immediately after the offering, providing immediate liquidity in the secondary market. This contrasts with typical private placements (e.g., Reg D), where securities are restricted and subject to holding periods before they can be resold.

Reg A+ is structured into two distinct tiers, each with specific limits and requirements:

• Tier 1: Allows capital raises up to $20 million in a 12-month period. It requires SEC qualification but does not preempt state securities law (blue sky) review.
• Tier 2: Allows capital raises up to $75 million. It provides federal preemption of state registration, but issuers must include audited financials and are subject to ongoing reporting obligations.

The blockchain industry has been a prominent user of Reg A+ for compliant token offerings. It enables projects to sell security tokens or equity to a broad investor base. Key aspects include:

• Providing a legal pathway for public token sales to U.S. investors.
• Requiring the token to be registered as a security for the offering period.
• Examples include early real estate and venture fund tokenization projects that sought retail participation.

A critical feature of Reg A+ is the ability to "test the waters" both before and after filing the offering statement with the SEC.

• Issuers can use generic solicitation materials to gauge public investor interest.
• This allows for market validation without the immediate cost of a full audit (for Tier 2) or legal review.
• All solicitation materials must include a disclaimer and direct investors to the eventual offering circular.

Companies that complete a Tier 2 offering must adhere to significant ongoing disclosure requirements, creating a public reporting profile.

• Annual Reports: Must file Form 1-K annually.
• Semiannual Reports: Must file Form 1-SA (similar to a 10-Q).
• Current Events: Must file Form 1-U for material events.
• These obligations are less burdensome than full Exchange Act reporting but provide transparency for investors.

Reg A+ sits between Regulation D (private placements) and a full IPO in terms of access and obligation.

• vs. Reg D (506c): Reg A+ allows advertising to non-accredited investors, while Reg D is typically limited to accredited investors only.
• vs. IPO: Reg A+ uses the Form 1-A qualification process, which is generally faster and less costly than the S-1 registration for an IPO, but comes with lower fundraising caps and, for Tier 2, lighter ongoing reporting.

To protect non-accredited investors in Tier 2 offerings, the SEC imposes investment limits.

• A non-accredited investor cannot invest more than the greater of:
  • 10% of their annual income, or
  • 10% of their net worth (excluding primary residence).
• There are no investment limits for accredited investors in a Reg A+ offering.
• These rules are designed to limit risk exposure for retail participants.

Reg A+ has two tiers with distinct limits and requirements.

• Tier 1: Allows raises up to $20 million in a 12-month period. Requires state-level (blue sky) review.
• Tier 2: Allows raises up to $75 million. Exempt from state review but requires audited financials and ongoing reporting. Most crypto projects target Tier 2 for its higher cap and streamlined state compliance.

Reg A+ functions as a 'mini-IPO', requiring the issuer to file an offering statement (Form 1-A) with the SEC for qualification. For a token sale, this involves:

• Disclosing detailed business plans and token economics.
• Providing audited financial statements (for Tier 2).
• Outlining specific use of proceeds and risk factors for investors. This process legitimizes the offering but involves significant legal and accounting costs.

It's crucial to understand that Reg A+ is an exemption from the full registration requirements of a traditional IPO under the Securities Act of 1933. However, it is more rigorous than other exemptions like Regulation D (private placements). The SEC's qualification of a Form 1-A does not constitute an endorsement of the offering's merits, only that the disclosure meets the rules.

Qualifying under Reg A+ creates ongoing obligations and potential liquidity benefits.

• Reporting: Tier 2 issuers must file annual (Form 1-K), semi-annual (Form 1-SA), and current event (Form 1-U) reports with the SEC.
• Trading: Securities sold under Reg A+ are not restricted and can be freely traded by non-affiliates immediately after the offering, providing a path to secondary market liquidity on ATS or exchanges.

Several blockchain projects have pioneered the use of Reg A+ for token sales.

• Blockstack (now Stacks): Conducted the first SEC-qualified token offering under Reg A+ in 2019, raising $28 million.
• Props Project: A decentralized video token network that received SEC qualification.
• YouNow: The parent company of Props, using Reg A+ for its token distribution. These cases established a template for compliant public token offerings in the U.S.

Compared to other common crypto fundraising methods, Reg A+ offers specific trade-offs.

• vs. ICO (2017 era): Provides regulatory clarity and investor protection, avoiding potential SEC enforcement for being an unregistered security offering.
• vs. Reg D (506c): Allows participation from non-accredited investors, dramatically expanding the potential investor pool.
• vs. Full IPO: Far less costly and time-consuming, but with lower fundraising caps and different ongoing compliance burdens.

The most common private offering exemption, allowing companies to raise unlimited capital without SEC registration. It primarily targets accredited investors and imposes strict limits on general solicitation and resale. Key rules include:

• Rule 506(b): Prohibits general solicitation, allows up to 35 non-accredited investors.
• Rule 506(c): Permits general solicitation but requires verification that all investors are accredited.

An SEC exemption allowing companies to raise up to $5 million in a 12-month period from both accredited and non-accredited investors via online platforms. Key features include:

• Investment limits based on an investor's annual income/net worth.
• Must be conducted through an SEC-registered intermediary (a funding portal or broker-dealer).
• Requires specific disclosures to the SEC and investors.

The traditional process of registering securities with the SEC for sale to the public for the first time. Unlike exemptions like Reg A+, an IPO requires a full registration statement (Form S-1), extensive ongoing reporting obligations, and is typically underwritten by investment banks. It provides the highest level of liquidity but with the greatest cost and regulatory burden.

A classification defined by the SEC for individuals or entities permitted to invest in certain unregistered, private securities offerings (like most Reg D deals). Criteria include:

• Individual: Net worth over $1 million (excluding primary residence) or income exceeding $200,000 ($300,000 with spouse) for the last two years.
• Entity: Assets over $5 million. Regulation A+ is distinct as it does not restrict participation to accredited investors.

The two offering tiers within Regulation A+ itself, which define the scale and obligations:

• Tier 1: Up to $20 million in 12 months. Requires SEC and state-level (blue sky) review. No ongoing reporting mandates beyond the offering statement.
• Tier 2: Up to $75 million in 12 months. Preempts state securities law review. Requires audited financials and ongoing annual (Form 1-K), semi-annual (Form 1-SA), and current (Form 1-U) reports to the SEC.

A provision allowing an issuer to gauge investor interest before formally filing or qualifying an offering statement with the SEC. Permitted under both Reg A+ and Reg CF. The issuer can use general solicitation materials but must include specific disclaimers and later file all used materials with the SEC. This helps assess market demand without incurring full regulatory costs upfront.